Massive commercial space glut by 2018 could trigger economic downturn

According to PTLM Research, the Klang Valley market has consistently seen over 100 high-rise and commercial development new launches each year over the last 4 years.

Bank Negara Malaysia (BNM) deputy governor Dr Sukhdave Singh cautioned today that the country’s economy was at risk due to an oversupply of commercial space developments within the next two years.

“By 2018, we might have an oversupply in the commercial space,” he said in his keynote addresses at a conference organised by the Malaysian Economic Association here.

For the office and retail space market, there is a risk of oversupply particularly in the major cities, with a report by Jones Lang Wootton foreseeing an average of 4.9 million square feet of new office space being added to the market each year over the next three years.

This, Dr Sukhdave said, is significantly higher than the historical average of 2.8 million square feet of new office space added to the market annually between 2001 and 2015.

He noted that such a trend caused market complications in other countries.

“If we look at other countries, it is such [oversupply] that precipitated an economic downturn,” he added.

For the retail segment, BNM said there are signs of oversupply, particularly in Penang, Johor and the Klang Valley, despite the vacancy rates in some of these areas improving in recent years.

"By 2018, prime retail space per capita in the Klang Valley and Johor Bahru is projected to increase by about 43% and 119% respectively from their already relatively high levels.

"The emergence of more new shopping malls is likely to increase competition for tenants, resulting in higher vacancy rates, lower rentals and increased risk of dilapidation," it added.